Lack of transparency causes drop in region's FDI

Wednesday March 29 2017

Despite a decline in FDI into the region in 2015, investors from China and the US injected $2.8 billion into various sectors. PHOTO | TEA GRAPHIC

In Summary

Despite the decline, investors from China and the US injected $2.8 billion into various sectors in the region.

EAC member countries have complicated the procedures for registering businesses and procuring business permits.

Differences in the implementation of tax exemptions and incentives among the partner states have failed to promote transparency in investment promotion at the regional level.

Overall foreign investments in the EAC region were concentrated in finance and insurance, transport and communications, and utilities.

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By JAMES ANYANZWA

EAST AFRICA’S foreign direct investment inflows declined in 2015 due to failure by member states to promote the region as a single investment destination.

A draft Trade Report (2015) by the EAC Secretariat shows that the level of FDI into the region fell by 16 per cent to $7.2 billion in 2015, from $8.6 billion in 2014, due to cumbersome regulatory and administrative policies that impacted negatively on investment promotion.

Despite the decline, investors from China and the US injected $2.8 billion into various sectors in the region.

According to the report, dated August 2016, EAC member countries have complicated the procedures for registering businesses and procuring business permits.

The report notes that differences in the implementation of tax exemptions and incentives among the partner states have failed to promote transparency in investment promotion at the regional level.

For instance, Rwanda has established special economic zones while Uganda, Tanzania and Kenya operate export processing zones.

“The region is reforming in order to attract investments. However, partner states still practice cumbersome administrative and regulatory practices in regard to registering a business and getting a licence,” the report states.

Investment into the EAC for 2015 accounted for just one per cent of global inflows that year.

Overall foreign investments in the EAC region were concentrated in finance and insurance, transport and communications, and utilities. Over 2015, foreign inflows into the finance and insurance sector amounted to about $2.8 billion while investments into the utilities sector amounted to about $1.8 billion. In 2015, foreign investments in the finance and agricultural sectors created 11,381 and 10,207 jobs respectively, while investments in the mining sector contributed 6,831 jobs.

Foreign investment in Kenya was driven by infrastructure, oil and mineral exploration, manufacturing, information communications and technology, transport and logistics, while in Tanzania it was driven by the gas sector.

According to the report, FDI into EAC over the past five years has been dominated by resource extraction and energy, creating a risk of large scale profit repatriation that tilts the balance of payments positions against host countries.

The value of FDI in Uganda, Tanzania and Burundi declined in 2015, but increased in Kenya and Rwanda. China was the main source of FDI to Uganda, amounting to $111 million.

In Rwanda, 2.9 per cent of total FDI was from Kenya, Tanzania and Uganda. The number of investment projects in Rwanda increased from seven in 2014 to nine in 2015, while the value increased from $26.20 million in 2014 to $30.50 million in 2015. The share of total investments to Rwanda from Kenya, Tanzania and Uganda were 70.5 per cent, 19.0 per cent and 10.5 per cent respectively.